Am I the only one without a "budget"?

[VAN]

Are there ever any circumastances where a reverse mortgage may make sense? I'm just thinking ahead for the worst case scenario with caring for my aging father who is adamant about staying in his own home. (Completely paid for and has been for years).

We has a fair amount of savings that he hasnt had to touch because he lives very simply and his monthly soc sec & pension check cover all his needs.

With the high cost of care, though, say at an assisted living facility, I had wondered if it was ever needed if it would be an option to consider?? He has early dementia and at some point my siblings and I will need help.

You may want to consult a Financial Planner. It seems to me (but I'm not an expert), that Medicare/Medicaid/or something will require that all assets be used before they come in with assistance EXCEPT for the auto and home. So I would really recommend that you meet with a local financial planner to understand your options as your father moves into this next stage of life. You will want to meet with someone who charges by the hour vs. someone who makes their money off commissions by selling you a financial product.

Additionally, while your father is still in the beginning stages, meet with an attorney to make sure all applicable paperwork is in order (e.g. will, power of attorney, etc).

 

[nunzia]

We see our home as a "fall back plan". We include it in our net worth but not in our retirement savings. We view SS as a "fall back plan" too.

A reverse mortgage is good if you live far longer than they expected. You can make out in those situations.

Many use a reverse mortgage as a way to stay in their home. Many seniors are so attached to their home that leaving it would lead to their passing sooner. Many times it is more of an emotional decision to get a reverse mortgage than a fiancial one.

and this is OT but a decent point to bring up. If you have any influence in your parent buying that dream retirement home, please try and help them understand how they will realistically be able to live there as they age. We have alot of transplants here who buy cute cabins nestled in the mountains..on horrible roads that close due to snow..can have power outages that go on for awhile..that are high altitude that can't be tolerated by many as they age..etc. etc...and when they have problems driving or need to to be closer to medical help or can't maintain the property..it becomes problematic. My B & SIL have had her parents living in their home for 6 years (they both work and have a second house 65 miles away and come home on weekends) and they both have aging issues..fairly severe..and they don't want them to have to go into assisted living so have hired another family member to do the heavy lifting so to speak, since their 2 daughters just can't or don't. Anyway..they had constructed a big house up in a canyon on a very twisty icky road and could no longer live there or maintain it. It has been on the market unsold all this time. Just a hint about looking forward in more ways than strictly financial.

 

[crjack]

Many use a reverse mortgage as a way to stay in their home. Many seniors are so attached to their home that leaving it would lead to their passing sooner. Many times it is more of an emotional decision to get a reverse mortgage than a fiancial one.[/QUOTE]

Yes, this is how we are looking at it and it would only be an option under specific circumstances (condition of dad, using up current financial resources, etc.) My Dad just turned 78 last week and he has worked hard and saved his entire life. He loves his home and never wants to leave so being the planner that I am I tend to explore every possible scenario!

 

[crjack]

You may want to consult a Financial Planner. It seems to me (but I'm not an expert), that Medicare/Medicaid/or something will require that all assets be used before they come in with assistance EXCEPT for the auto and home. So I would really recommend that you meet with a local financial planner to understand your options as your father moves into this next stage of life. You will want to meet with someone who charges by the hour vs. someone who makes their money off commissions by selling you a financial product.

Additionally, while your father is still in the beginning stages, meet with an attorney to make sure all applicable paperwork is in order (e.g. will, power of attorney, etc).

Thank you. He has all of his estate planning and paperwork in line and we are looking at private care not any Medicare assistance. He loves his home and would prefer to stay there with any care needed brought in. The private facilities in our area are very expensive so for future planning I was just considering all options.

For now, he is fine with just assistance from family and he has a good size retirement account, along with monthly income for life. If those things change, along with changes to his medical situation, I'm just researching all potential options.

 

[neatokimmo]

When I think of reverse mortgages (or any mortgage left on a house of an elderly parent) I think of the kids who have to settle your estate and how rough that is on them.

When my Dad died, I had my mortgage where he lived with me (which he contributed by paying the bills) then suddenly I had his condo mortgage to keep up with for 9 months while the condo was for sale. Every day I woke up and prayed my car would start and nothing would break because I didn't have the money to fix it.

So I guess think of the person who is going to be left the house. Maybe pull out extra to cover payments while it is for sale. No matter how great you think your house is, it's only as great as the buyer thinks it is.

 

[allison443]

I have relatives who took out a reverse mortgage, actually it is like a home equity line of credit in that they only tap into it as needed. They do not receive monthly payments. They did this because they live on social security and their two pensions...they do not have a large nest egg of savings at this point. They tapped the reverse mortgage funds to purchase a car and also to make some modifications/improvements to their home as they anticipate staying there forever. The mortgage will be repaid when the house is sold, or they move out or die.

Their paid-for house is in a borough of NYC and is worth at least $500K (even in today's market). For a variety of reasons they did not want to relocate or downsize. They decided to stay in the house and tap their equity for their large purchases. I definitely don't see a problem with this.

 

[punkin]

I have relatives who took out a reverse mortgage, actually it is like a home equity line of credit in that they only tap into it as needed. They do not receive monthly payments. They did this because they live on social security and their two pensions...they do not have a large nest egg of savings at this point. They tapped the reverse mortgage funds to purchase a car and also to make some modifications/improvements to their home as they anticipate staying there forever. The mortgage will be repaid when the house is sold, or they move out or die.

Their paid-for house is in a borough of NYC and is worth at least $500K (even in today's market). For a variety of reasons they did not want to relocate or downsize. They decided to stay in the house and tap their equity for their large purchases. I definitely don't see a problem with this.

So is it a reverse mortgage (doubtful if there are no monthly payments because that is the way these things are structured) or is it a HELOC, which is a completely different animal altogether? HELOCs make a whole lot more sense than reverse mortgages in the situation you described. A reverse mortgage is (in large part) an actuarial product based on life expectancy. A HELOC is purely financial based on the equity in the home.

 

[MrsPete]

And after this latest housing *depression*.....yes, *depression*......and it's still heading down......the amount of equity that they'd be willing to pony up is going down.

I'm not sure I'd agree that "housing depression" is the right term. I'm more inclined to believe that over the last three decades we've experienced an abnormal upswing in housing, and now the market is adjusting "back to normal".

A number of things played into the increase in housing markets: First was large numbers of women becoming professional workers for their entire lives in the 70s (as opposed to working a little part-time job here and there); that gave families more money to spend, and they spent it on housing. About the same time, we as a society started to expect more from our housing; for example, when I was a kid I knew plenty of families who shared one bathroom -- now "everyone" has at least two bathrooms. Also, kids used to share bedrooms; that's no longer the norm. We as a society have developed an expectation, too, that a middle class house'll have features that used to be reserved for the wealthy: Dens, rec rooms with wet bars, pools, media rooms. And perhaps most importantly, people have largely lost sense of the idea of EVER being mortgage-free. We as a society decided that a house = money, and we should buy as much as we can -- it's been seen as a sure way to increase one's holdings. This idea of more, more, more expanded beyond what was reasonable . . . and now we're returning to a more normal state of affairs. Housing costs have reached epic proportions, and at this rate our children will never be able to afford to own anything.

Anyway, I don't really think it's a housing depression.

Are there ever any circumastances where a reverse mortgage may make sense?

Sure, but even if it's the right choice, it's an expensive choice. I don't think it's something to consider as your first-string plan.

Here's an analogy: Let's say you're just finishing college and starting your first professional job. You have NO money, but you need to dress nicely for your job. So you take your 20% interest credit card, and you buy a small wardrobe. You do it KNOWING that it's an expensive choice, KNOWING that you're going to pay more than you have to pay . . . but at the same time, understanding that you're in a tough position and you have no other real options. You do what you have to do. BUT if you had other choices, you wouldn't fall back upon that 20% interest credit card.

A person who's not yet retired has other options for saving. I personally wouldn't consider the expensive reverse mortgage my first-string plan.

A consultation with a financial planner is a good idea so you can be SURE that you know what your options will be. My brother and I have some land with some unusual circumstances attached to it, and last summer we went to two professionals for advice on how best to manage the finances associated with its ownership and upkeep. The advice we received was invaluable and well worth the small price we paid for a bit of time with those professionals. The tax attorney in particular gave us some ideas that never would've been obvious to us.

And -- can't forget this detail -- things can change between now and the time we all retire. It wasn't all that long ago that reverse mortgages didn't even exist. Will they be a realistic option 20-40 years from now? That's anyone's guess. It's never wise to have all -- or even most -- of your eggs in one basket (even if that basket is a well-maintained three-bedroom brick Cape Cod with attached garage). We should all be sure we're diversified so that if any ONE of our retirement funds fails, we still have others.

 

[dvcgirl]

I'm not sure I'd agree that "housing depression" is the right term. I'm more inclined to believe that over the last three decades we've experienced an abnormal upswing in housing, and now the market is adjusting "back to normal".

A number of things played into the increase in housing markets: First was large numbers of women becoming professional workers for their entire lives in the 70s (as opposed to working a little part-time job here and there); that gave families more money to spend, and they spent it on housing. About the same time, we as a society started to expect more from our housing; for example, when I was a kid I knew plenty of families who shared one bathroom -- now "everyone" has at least two bathrooms. Also, kids used to share bedrooms; that's no longer the norm. We as a society have developed an expectation, too, that a middle class house'll have features that used to be reserved for the wealthy: Dens, rec rooms with wet bars, pools, media rooms. And perhaps most importantly, people have largely lost sense of the idea of EVER being mortgage-free. We as a society decided that a house = money, and we should buy as much as we can -- it's been seen as a sure way to increase one's holdings. This idea of more, more, more expanded beyond what was reasonable . . . and now we're returning to a more normal state of affairs. Housing costs have reached epic proportions, and at this rate our children will never be able to afford to own anything.

Anyway, I don't really think it's a housing depression. Sure, but even if it's the right choice, it's an expensive choice. I don't think it's something to consider as your first-string plan.

Here's an analogy: Let's say you're just finishing college and starting your first professional job. You have NO money, but you need to dress nicely for your job. So you take your 20% interest credit card, and you buy a small wardrobe. You do it KNOWING that it's an expensive choice, KNOWING that you're going to pay more than you have to pay . . . but at the same time, understanding that you're in a tough position and you have no other real options. You do what you have to do. BUT if you had other choices, you wouldn't fall back upon that 20% interest credit card.

A person who's not yet retired has other options for saving. I personally wouldn't consider the expensive reverse mortgage my first-string plan.


And -- can't forget this detail -- things can change between now and the time we all retire. It wasn't all that long ago that reverse mortgages didn't even exist. Will they be a realistic option 20-40 years from now? That's anyone's guess. It's never wise to have all -- or even most -- of your eggs in one basket (even if that basket is a well-maintained three-bedroom brick Cape Cod with attached garage). We should all be sure we're diversified so that if any ONE of our retirement funds fails, we still have others.

I see where you're going with this line of thinking. This is essentially "The Two Income Trap" line of thinking. Another great book.....

I do think we're experiencing a "housing depression" based on the percentages set out in economics though. This is different than any housing downturn we've had....the only thing that comes close is The Great Depression. It's pretty rare that I disagree on any point with you Mrs. Pete....it feels kind of weird....lol!

And like we've discussed before around here. One reason things don't look as bad as they did back in the 30s is that we have a huge safety net set up in this country that didn't exist back then. We have Unemployment insurance, social security, medicare, medicaid, social security disability, welfare and a whole score of state programs.

Anyway, I think it's going to be a long, long time before housing comes back on a national level. A lot of Americans got into the habit of using their homes as ATM machines, and that's over for quite some time. I believe it was 2005 that 800 Billion dollars was pulled out in equity and spent in our economy. That kind of thing sure ain't happening any time soon.

 

[punkin]

I see where you're going with this line of thinking. This is essentially "The Two Income Trap" line of thinking. Another great book.....

I do think we're experiencing a "housing depression" based on the percentages set out in economics though. This is different than any housing downturn we've had....the only thing that comes close is The Great Depression. It's pretty rare that I disagree on any point with you Mrs. Pete....it feels kind of weird....lol!

And like we've discussed before around here. One reason things don't look as bad as they did back in the 30s is that we have a huge safety net set up in this country that didn't exist back then. We have Unemployment insurance, social security, medicare, medicaid, social security disability, welfare and a whole score of state programs.

Anyway, I think it's going to be a long, long time before housing comes back on a national level. A lot of Americans got into the habit of using their homes as ATM machines, and that's over for quite some time. I believe it was 2005 that 800 Billion dollars was pulled out in equity and spent in our economy. That kind of thing sure ain't happening any time soon.

I agree. It is definitely a depression. I was reading in the Wall St. Journal today that housing values are now down to 2002 levels. That means that almost a decade of appreciation has been wiped out completely and a huge amount of people who bought in the past decade have lost money. What is that, if not a depression?

This has not happened nationwide since the Great Depression but there have been local slumps, like the Texas oil patch.

 

[nunzia]

I agree. It is definitely a depression. I was reading in the Wall St. Journal today that housing values are now down to 2002 levels. That means that almost a decade of appreciation has been wiped out completely and a huge amount of people who bought in the past decade have lost money. What is that, if not a depression?

This has not happened nationwide since the Great Depression but there have been local slumps, like the Texas oil patch.

I think we are in a depression and if the 'safety net',which has really become not that but a way of life and expectation, gets diluted as it probably must, things will get much worse.
Anyway..housing I see not so much as a loss of 'value' but an reset of what it should be, like the Beanie Baby effect...They were 'worth' so much at one time and now they are reflecting their true 'worth' (25 cents each at a yard sale) Things are only worth what people are willing to pay.

 

[punkin]

I think we are in a depression and if the 'safety net',which has really become not that but a way of life and expectation, gets diluted as it probably must, things will get much worse.
Anyway..housing I see not so much as a loss of 'value' but an reset of what it should be, like the Beanie Baby effect...They were 'worth' so much at one time and now they are reflecting their true 'worth' (25 cents each at a yard sale) Things are only worth what people are willing to pay.

You will get no argument from me that there was definitely a "bubble" in many areas and there is no such thing as "intrinsic" value only "market" value (you will get no argument on the safety net issue either). However, the fact remains that many people lost a decade's worth of housing appreciation and we are still not at the bottom.

 

[MrsPete]

I see where you're going with this line of thinking. This is essentially "The Two Income Trap" line of thinking. Another great book......

Oh, I'd forgotten about that book. I read it a long time ago.

I agree with its message in principle, but I think the book under-estimated the damage of increased consumption. I do agree that it's harder to get ahead now than it was a generation ago, and the world is much less forgiving to those who get off to a bad (or debt-ridden) start . . . BUT I think the book basically glossed over society's lack of willingness to delay gratification. In my personal experience, people today -- especially young people -- are also eating out more, buying more "toys", going on more vacations, and are generally more accepting of debt. While this book has a very valid point, I think it minimizes today's lack of willingness to sacrafice and do without in the name of getting ahead.

I do think we're experiencing a "housing depression" based on the percentages set out in economics though. This is different than any housing downturn we've had....the only thing that comes close is The Great Depression. It's pretty rare that I disagree on any point with you Mrs. Pete....it feels kind of weird....lol!

Yeah, we usually do see eye to eye, but I still disagree on this point. I still maintain that housing prices have been on a "false high" for 3-4 decades, so now as they "correct", it feels like they're decreasing.

I think we are in a depression and if the 'safety net',which has really become not that but a way of life and expectation, gets diluted as it probably must, things will get much worse.
Anyway..housing I see not so much as a loss of 'value' but an reset of what it should be, like the Beanie Baby effect...They were 'worth' so much at one time and now they are reflecting their true 'worth' (25 cents each at a yard sale) Things are only worth what people are willing to pay.

Beanie Babies are a great example -- on a much smaller scale, of course.

For a couple years, Beanie Babies increased well beyond their actual value. People were willing to pay any price to get this or that item to complete a series. And some people invested much more than they should've in the things. But the fad passed. I wouldn't call housing a fad, of course, but the idea that housing should increase so rapidly has passed. Houses didn't always increase in price. In my grandparents' day, housing prices remained much more stable, increasing only slightly (assuming, of course, no additions or improvements). The idea that your house should shoot up in value didn't exist until maybe the 50s or 60s -- and it didn't really take hold until later. Now we're reverting back to a more stable housing market.

While this is horrible for us who already own houses, it's good for our children -- lower-priced housing may be one of the few breaks their generation catches.